Fundamentals of Corporate Governance

Corporate governance system

Internal documents regulating the Company’s corporate governance are published on the Company’s website: https://rosseti-yug.ru/en/corporate-managment.

Principles of corporate governance

• Equal and fair treatment of all shareholders
• Responsibility and accountability of the Board of Directors to the Company’s shareholders
• Transparency and openness of information about the Company
• Effective risk management and internal control system
• Responsibility of the Company to shareholders, consumers, employees, partners, society and the state
• Sustainable development and implementation of strategic programmes and projects

Development of corporate governance

Among the measures planned for 2024 to improve corporate governance, the corporate governance rating was maintained at a high level (NCGR 7), and there was a high level of discipline in executing decisions of the governing bodies.

Measures to improve corporate governance in 2024:

• Ensuring that the corporate governance rating is at a high level
• Updating of the Company’s internal documents related to corporate governance in general, as well as documents regulating the organisation of activities of governance bodies
• Making sure that the governance bodies’ resolutions are fulfilled properly
• Disclosing non-financial statements in the form of an integrated report

Self-assessment of the performance of the Board of Directors and its committees

In 2024, we conducted another self-assessment of the performance of the Company’s Board of Directors and its committees based on the Methodology approved by the Board of Directors on 17 March 2020 (Minutes No. 364/2020 dated 18 March 2020), which was formulated in accordance with the laws of the Russian Federation, the Company’s Articles of Association and the Corporate Governance Code of the Bank of Russia. The overall performance score of the Board of Directors of PJSC Rosseti South for the 2023/2024 corporate year was 4.7, which means ‘more likely compliant’ with the recommendations contained in international and Russian standards of best corporate governance practices.

Preparation of non-financial statements

In the past year, the Company prepared an integrated Annual Report for 2023, which was publicly certified by the Non-Financial Reporting Council of the Russian Union of Industrialists and Entrepreneurs.

Plans for improving the corporate governance model and practices for 2025 and the medium term

• To comply with the rules and principles of corporate governance set out in the current internal documents of the Company
• To adopt its own Corporate Governance Code
• To ensure the effective functioning of the Company’s governance bodies and control over the execution of their decisions
• To maintain the corporate governance rating at the level of well-developed corporate governance practice
• To implement action plans based on the results of the Company’s corporate governance assessment

In 2025, the Company will continue to analyse best corporate governance practices and assess the feasibility of their implementation.

Assessment of the corporate governance level

The effectiveness of the corporate governance system in the Company for the 2023–2024 corporate year was assessed in accordance with the Corporate Governance Assessment Methodology of PJSC Rosseti South, approved by the Company’s Order No. 416 dated 16 July 2023, issued in pursuance of Order No. 303 of PJSC Rosseti dated 8 July 2024 ‘On Approval of the Methodology for Assessing the Effectiveness of the Corporate Governance System of PJSC Rosseti South’ (hereinafter referred to as the Methodology).

The assessment determined that corporate governance is consistent with well-developed practices (394 out of 449 points, 88%, which corresponds to scoring boundaries of <96% and ≥80%).

At the same time, there is an area for improvements for the components / elements as follows:

• Shareholder rights 2 points (3%)
• Board of Directors 23 points (18%)
• Executive management 14 points (41%)
• Transparency and disclosure of information 14 points (11%)
• Risk management, internal control and internal audit 2 points (3%)

It should be noted that in the 2024–2025 corporate year, there is potential for growth in the corporate governance rating as a result of the following measures taken by the Company:

• Holding face-to-face meetings of the Personnel and Remuneration Committee and the Strategy Committee at least once a quarter
• Expanding the list of issues on which the Board of Directors makes decisions by a qualified majority (at least three-quarters of the votes) or by a majority of all elected (non-retired) members of the Board of Directors
• Reviewing the self-assessment of how well the Board of Directors and the Board Committees are performing at a face-to-face Board meeting
• Drafting and approving the Company’s talent pool development programme
• Developing and approving a succession plan for the Company’s executive management
• Applying an external auditor rotation policy in 2025

Independent assessment

The Company engages an external corporate governance consultant as an independent expert on an ongoing basis, which enables tracking the effectiveness of ongoing changes and consistently implementing management system improvement tools, as well as elements of best practices.

In October 2023, the Russian Institute of Directors confirmed Rosseti South’s National Corporate Governance Rating (NCGR) at level 7, Well-Developed Corporate Governance Practice.

A rating of 7 means that the Company follows a significant number of recommendations of the Russian Corporate Governance Code and sustainable development standards. The Company is characterised by sufficiently low stakeholder risks related to the quality of corporate governance and sustainability management.

Assessment of compliance with the principles and recommendations of the Corporate Governance Code of the Bank of Russia

In the process of improving the efficiency of the corporate governance system, the Company endeavours to follow the best Russian practices enshrined in the Corporate Governance Code of the Bank of Russia.

Compliance with the corporate governance principles

We maintain a high level of compliance with the recommendations of the Corporate Governance Code. Since 2014, when the Bank of Russia’s Corporate Governance Code was approved, the rate of full and partial compliance with the recommendations has increased from 75% to 98.7% by 2024, including the rate of full compliance from 50% to 81.4%.

To improve the level of corporate governance at PJSC Rosseti South in 2025, the Company plans to:

• Increase the number of in-person meetings of the Company’s governance bodies
• Update the Company’s internal documents in line with changes in the legislation of the Russian Federation